Bill seeks Jones Act exemption for some Puerto Rico cargo

Friday, July 26, 2013

Puerto Rico’s representative to the U.S. House of Representatives said he has introduced legislation that would exempt vessels carrying fuel, agricultural products and other bulk cargo from provisions of the Jones Act.
Resident Commissioner Pedro Pierluisi on Thursday introduced H.R. 2838, the Puerto Rico Interstate Commerce Improvement Act of 2013.
“In effect, my bill relaxes a component of the Jones Act — the U.S.-build requirement — for particular vessel types operating in the Puerto Rico trade, namely self-propelled ships and tankers that transport bulk cargo, including liquified natural gas, liquified propane gas, jet fuel, gasoline, oil, chemicals, and agricultural products like fertilizer and animal feed,” Pierluisi said.
The Jones Act requires that maritime transportation of cargo between
ports in the United States be carried on vessels that are owned by U.S.
citizens and registered in the United States, built at shipyards located
in the United States, and operated with predominantly U.S. citizen
crews. It appears his legislation would only change the requirement that
bulk vessels serving Puerto Rico be built in the U.S.
“The goal is to enable customers in Puerto Rico to source these products in a more efficient and less expensive way from suppliers in the United States,” he continued.
He said a study prepared at his request by the U.S. Government Accountability Office (GAO) and released in March, Characteristics of the Island's Maritime Trade and Potential Effects of Modifying the Jones Act, indicated ”there are not enough Jones Act-compliant vessels available to transport refined petroleum and gas products from the U.S. mainland to Puerto Rico to meet current and emerging demand and, as a result, companies in Puerto Rico are importing most fuel from foreign countries like Venezuela rather than from refineries in the United States.
“There is a well-founded concern that the Jones Act is hindering domestic maritime commerce in the case of Puerto Rico. This hurts businesses and consumers in both the 50 states and the U.S. territory of Puerto Rico. That is why I am introducing this targeted bill,” Pierluisi said.
Michael N. Hansen, president of the Hawaii Shippers Council, said his organization “supports Rep. Pierluisi’s legislation as a first step to exempting all the noncontiguous trades — Alaska, Guam, Hawaii and Puerto Rico — from the U.S.-build requirement of the Jones Act for all deep-draft ships.”
The Jones Act has long been under attack by some shippers who feel it forces up transportation costs and shipping companies who would like to enter the coastal trades at lower cost. The higher costs of building ships in the U.S. and crewing them with Americans is sometimes cited as one reason why coastal container or roll-on, roll-off services have been slow to develop in the U.S. But the law is vigorously defended by shipbuilders, who say it provides an important source of business to shipyards in the U.S.; by defense planners, who says it employs mariners who may be needed in the event of war; and by economists and unions, who say it is an important source of good-paying jobs.
Claims about the supposed cost of Jones Act are subject of hot debate. Just this week, CNBC published an article that claimed gasoline costs in the U.S. could fall with a repeal of the Jones Act. The article quoted Joe Petrowski, the CEO of Gulf Oil, as saying “If foreign-owned and flag ships were able to carry gasoline in U.S. waters, the price of gasoline in the Northeast and in Florida could be 20 to 30 cents lower.”
But those estimates were seen as far too high by a shipbroker and leading analyst of the U.S. bulk trades.
“The most extreme example of costs added by Jones Act tonnage are in the Florida gasoline trade. On average, in 2013 the cost of shipping gasoline into Florida on the benchmark Houston-Port Everglades voyage has been 8.3 cents/gallon or $3.48/Bbl. Gasoline from USG generally goes about as far as Jacksonville... and rarely north of Savannah," Donald Bogden, a product tanker broker at MJLF & Associates in Stamford, Conn., told American Shipper.
The distance from Houston to Port Everglades is about 1,000 miles. A similar-length voyage in Mexico (in time, not distance, since ships in Mexico would likely face port delays) on a foreign-flag ship would command a rate of about 3.5 cents to 4.5 cents per gallon, he said, making for a difference of 3.8 cents to 4.8 cents.
He said the U.S. Atlantic Coast (USAC) is supplied by a combination of local refineries, the Colonial Pipeline, East Coast Canada refining via international flag tonnage, and European refining via international flag tonnage, with the vast majority of product coming from local refineries and the Colonial Pipeline.
“While there is some local Jones Act barging following international flag imports, Jones Act rates adding significant upward pressure to USAC gasoline prices is not really a coherent argument," he said. (Bogden made his calculations using current rates.)
Brent Dibner, the president of Dibner Maritime Associates in Chesnut Hill, Mass., noted, however, that rates between Jones Act and foreign flag tonnage are further apart than they have been in some time, with charter rates for international flag MR tankers “terribly depressed.” In some cases, these rates are falling to less than $8,000 per day, and U.S.-flag charter rates are reaching reaching $60,000 or $70,000 per day or more. With more normative, sustainable rates — $15,000 a day for an international-flag tanker and $50,000 a day for a U.S. flag tanker — Dibner said the difference works out to about 2.5 cents per gallon for cargo moving from the Gulf to Florida. A similar figure would apply to vessels plying the West Coast trade.
“The point is that on fuel, with taxes, that costs the consumer $3.70. ... That is trivial impact to the consumer,” he said. He noted that only a tiny fraction of fuel moves in Jones Act vessels.
Pierluisi sees benefits beyond supplying the U.S. with gas.
“The GAO report indicates that there are insufficient Jones Act-qualified bulk cargo vessels to meet current and future demand in Puerto Rico for certain products, such as energy supplies and agricultural inputs. As a result, there is a well-founded concern that the Jones Act is hindering domestic maritime commerce in the case of Puerto Rico. This hurts businesses and consumers in both the 50 states and the U.S. territory of Puerto Rico. That is why I am introducing this targeted bill,” said Pierluisi.
Pierluisi noted that the U.S. has recently emerged as the top producer of natural gas in the world, with natural gas being produced in over 30 states. In the 48 contiguous states, natural gas is distributed to power plants by a network of pipelines. He said Puerto Rico continues to generate most of its electricity from imported foreign oil, which is more expensive and environmentally harmful as compared to natural gas.
“Because of Puerto Rico’s excessive reliance on oil, island households and businesses are paying twice as much for electricity as the U.S. national average. The high cost of electricity strains family budgets and is regularly cited as the main burden facing current and prospective island businesses. Efforts to convert more of Puerto Rico’s power plants from oil to natural gas cannot be fully realized unless Puerto Rico can gain access to natural gas produced in the U.S. mainland. Because of its geographic location, of course, Puerto Rico can only obtain this gas via ship, not pipeline,” said Pierluisi.
“Therefore, my bill would enable foreign-built vessels to transport liquefied natural gas and other fuels from the U.S. mainland to Puerto Rico. This will benefit energy producers in the states, who will gain access to an important new U.S. market and make a positive contribution to their local economies. It will also provide a direct benefit to consumers in Puerto Rico, who will see their electricity bills decrease,” he added. - Chris Dupin